CAO Cases

Peru / Agrokasa-01/Ica

Water users' associations of Rio Seco and Ica, and other stakeholders who requested confidentiality.

Date Filed

June 02, 2009

Concerns

Depletion of Ica aquifer, water quality, drilling throughout the valley, licensing of wells and water transfer projects, disclosure of information.

Case Status

Closed

Synopsis

ComplaintAgrokasa, an IFC client since 1999, is a leading Peruvian grower and exporter of fresh asparagus, table grapes, and avocados. The company operates three farms, two of which -Santa Rita and La Catalina - are located 300 km south of Lima in the Ica valley.

In June 2009, six complaints were filed by various stakeholder groups regarding the impact of Agrokasa’s operations on the Ica aquifer. Two of the complaints were signed by ground-water users’ associations - one by the Junta de Usuarios de Rio Seco, and one by the Junta de Usuarios de Aguas Subterraneas del Valle de Ica (JUASVI). One complaint was signed jointly by the NGOs Progressio and Water Witness International, but was later formally withdrawn by Progressio’s executive director. Three of the complaints requested confidentiality.

The complaints raised concerns about depletion of the aquifer due to excessive drilling throughout the valley, and question the legality of some of Agrokasa’s operations. Several of the complaints also question the licensing and permitting process for an Agrokasa water transfer project, and state that complete information about the project was not disclosed to other growers and municipalities in the region.

CAO ActionIn July 2009, a CAO team traveled to Peru to meet with key stakeholders in Lima and Ica to conduct an assessment of the situation and assess options for resolution of the issues with the parties.

In an assessment report distributed to the parties in December 2009, the CAO team identified areas of common ground shared by all the parties, and recommended they undertake a process of assisted negotiation to address the area’s critical water situation collaboratively. The CAO team also identified several issues the parties were not willing to negotiate, and recommended those be transferred to CAO Compliance for appraisal.

After a period of assisted negotiation, two ground-water users’ associations launched in March 2010 a Working Group involving two other water users’ associations (who depend primarily on surface water) and two local water authorities from the Ica and Rio Seco sections of the valley. As a member of JUASVI, Agrokasa participated in and supported the Working Group’s efforts to jointly address the shared concerns regarding the water situation – including the concerns raised in the complaints.

A CAO Dispute Resolution team facilitated monthly meetings of the Water Working Group until November 2010, at which time it concluded its role as facilitator and undertook a process of monitoring the group’s agreements and progress toward implementing its goals. The Working Group’s aim is to jointly develop short- medium- and long-term strategies for managing the water resources in the Ica basin. In April 2011 CAO’s Dispute Resolution team concluded its involvement with the complainants.

Issues that the parties were not willing to negotiate were transferred to CAO Compliance in March 2010 for appraisal. CAO's appraisal, disclosed June 2010, determined that an audit of IFC's investments in Agrokasa and Corporacion Drokasa was merited. This decision was made on the basis that CAO found it unclear whether IFC's policy provisions had been applied properly, and whether the IFC policy provisions provided an adequate level of protection.

CAO released its Audit Report in December 2011. The report noted that IFC’s due diligence was focused on whether the client would be able to repay the loan. By pursuing this investment before an adequate Environmental Assessment (EA) was prepared, CAO found that IFC risked proceeding without understanding the potential negative impacts of the project. The CAO audit identified tensions between the investment team and E&S specialists that led to the commercial interests taking precedents over an understanding of the scale of the impact of the project prior to Board approval. CAO concluded that IFC lacked an effective risk management process to ensure that different points of view of the project team were properly aired and either resolved, or followed a process for proper disposition and conclusion before seeking Board approval.

StatusFollowing discussions with IFC in June 2013, CAO released a Monitoring and Closure Report. This report noted changes in IFC’s policies, procedures, and practice designed to address the findings of the CAO audit. Further, CAO noted IFC’s assertion that should a situation similar to the one encountered in the Agrokasa audit arise today, it would lead to a higher assessment of E&S risk, and thus increased due diligence and E&S assessment requirements prior to approval. While anticipating that challenges will remain for IFC in implementing changes in policies, procedures and practices, CAO determined that it had sufficient basis to close the audit. The case was officially closed on June 20, 2013. All documentation relating to this case, including the Compliance Monitoring and Closure Report, is available under "View Documents" below.